The danger of giving into market tantrums, and a messy Apple chart

We’ve all been there. A screaming, crying toddler on the floor, at the mall, or wherever. They’ve dug in, prepared to make life hell until you give in to their passing desire. You have two choices: Hold your ground and cover your ears, or give in and get some peace.

But go with the latter and (at least, according to wise-ass parents whose kids always slept through the night) you will repeat this scenario over and over again.

Advice to consider, after the markets went through the mother of all tantrums this week. It’s got some people reviving sweet memories of May 2013, when the Fed announced the beginning of the end of its tapering program. Lots of factors have been taking heat for the recent bout of volatility, but it was the switcheroo on a QE delay from the Fed’s Bullard that really put an end to the kicking and screaming yesterday.

But is that such a good thing? Rabobank analysts say we should be worried that “the most important central bank in the world can either be pushed off its policy-tightening course so rapidly by what is still just a minor correction in the asset bubble it has helped to create; or that it is so unaware of the underlying reality of the weakness of the economy (sans QE) that the market had to point out that fact to it very violently.”

That view’s echoed by WSJ MoneyBeat’s Michael Casey. “This ‘moral hazard’ problem, where risk is not properly priced, is a root cause of market dysfunction generally. It should not be stoked any more than it has been over the past two decades,” he writes.

The S&P 500
SPX, +0.32%
has come off between 7% and 9% — depending on the measure — since its all-time high, reached Sept. 18, says Tiho of the Short Side of Long Blog. “Unless you are a short-term trader, this is nothing to even worry about.”

“I am not saying without QE program S&P 500 would return back to March 2009 lows of 666 points, but what I am saying is that all the markets (including bond interest rates) need to be left alone, without constant intervention by central banks, to clear themselves and find fair and true value based on what the market deems to be current fundamentals,” Tiho says.

J.J. Zhang says we’re either in one of two places at the moment: “a normal overextended and overbought market situation resulting in a cyclical retraction, or the beginning of a market response to a once-in-a lifetime change in monetary stimulus.” If it’s the former, investors could be looking at a good short-term buying opportunity, and if it’s the latter, MarketWatch columnist Zhang says your portfolio could see some pain for the longer term, especially on interest-rate sensitive assets. Read: Correction of Taper Tantrum 2.0?

If you’re young though, as blogger Meb Faber points out, big market falls should be an invitation to dive in anyway. Lots more opinions to pick from: ‘Trust me, I’m Goldman Sachs’ says don’t get in a kerfuffle, while El-Erian says it’s time to panic.

Temper, temper. We’ll see if Ma Yellen can sort it out later.

Key market gauges

Judging by stock futures, investors look to be expecting words of hope from the Fed chief later. Futures on the Dow
US:YMZ4
and the S&P
US:ESZ4
are soaring. China
SHCOMP, +0.54%
had an ugly day, while the Nikkei 225 index
NIK, +1.23%
also fell. Europe
SXXP, +0.97%
is shooting higher. Greek stocks
GD, -1.26%
are up nearly 5%.

Crude-oil prices
US:CLX4
are also in the throes of a big rebound, while gold
US:GCZ4
is going into downward mode on all that equity and oil excitement.

The quote of the day

“Let’s go get ’em tonight. Let’s battle. We’ve got Bum on the mound. Let’s just get a couple of runs early and let’s just go to work.” — What S.F. Giants catcher Buster Posey said to his teammates before the game that advanced his team to the World Series. (Full writer disclosure: Kansas native. #Royals)

The economy

After Bullard and a bunch of other Fed members went flying in all directions yesterday, we’ll see what Janet Yellen has to say about it when she speaks in at the Boston Fed conference. So far, she’s talking about rising in equality and her great concern over it. What would she say about 113 staffers at the Fed earning more than she does?

Boston Fed President Eric Rosengren will also speak at the same venue. He told CNBC on Friday morning and said it’s too soon to make an adjustment on QE plans.

Housing starts came in 6.3% higher in September, bouncing back from a hefty prior-month drop. At around 10 a.m., consumer sentiment for October will be delivered. Read our preview of that data.

Earnings

Google
GOOG, +1.15%
is slipping premarket, while it’s worse for Advanced Micro Devices
AMD, -1.06%
down nearly 3%. Both delivered earnings that were short of Wall Street hopes and AMD also said it plans to lay off 7% of its workforce. As for Google, a slowdown in paid clicks took the wind out of investors’ sails. Make yourself feel better with these charts showing how Google still dominates.

The chart of the day

Is there a problem with Apple? J.C. Parets at AllStarCharts shows Apple shares in a continuation pattern all the way up to October, but then things get messy. Of course, October has been messy all over.

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